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Court of Appeal Rules PAGA Claims Are Not Arbitrable

In Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal.4th 348 (2014), the California Supreme Court ruled that employees cannot waive their right to assert claims for Labor Code penalties brought under the Private Attorney General Act (PAGA) (Cal. Lab. Code, §§ 2699 et seq.) in any available forum. The rationale was that such claims do not belong to individual employees but are brought on behalf of the Labor Commissioner. The case arose in the context of a motion to compel arbitration under an arbitration clause that required employees to waive their rights to bring class or representative actions. Although U.S. Supreme Court precedent had established that the Federal Arbitration Act preempted states from refusing to enforce class action waivers in arbitration clauses (see AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011)), the California Supreme Court ruled in Iskanian that representative actions on behalf of a state agency were not covered by the ruling.

Although Iskanian established that PAGA claims may not be waived, it has not been clear how PAGA claims should be handled when they are covered by an arbitration clause. The Ninth Circuit ruled in Sakkab v. Luxottica Retail North America, Inc., 803 F.3d 425 (9th Cir. 2015) that PAGA claims could be ordered to arbitration, but declined to decide whether the clause at issue in that case covered PAGA claims. The California Courts of Appeal have ruled that PAGA claims may not be ordered to arbitration. See Julian v. Glenair, Inc., 17 Cal.App.5th 853 (2017); Betancourt v. Prudential Overall  Supply, 9 Cal.App.5th 439 (2017); Tanguilig v. Bloomingdale’s, Inc., 5 Cal.App.5th 665 (2016).

A recent case in the San Diego division of the Fourth District Court of appeal rejected an employer’s arguments that (1) Iskanian was no longer good law because of more recent U.S. Supreme Court precedent, and (2) that PAGA claims could be ordered to arbitration. Correia v. NB Baker Electric, Inc., Case No. D073798 (Feb. 25, 2019). The challenge to the continuing validity of Iskanian rested on the U.S. Supreme Court’s decision in Epic Systems Corp. v. Lewis, Case No. 16-285 (Oct. 2, 2017), where the Court ruled that the Federal Arbitration Act required a court to enforce the waiver of the right to bring a Fair Labor Standards Act collective action that was contained in an arbitration clause. The Court of Appeal determined that Epic Systems did not consider the application of the Federal Arbitration Act to representative actions under statutes like PAGA, and, therefore, Iskanian remained good law. It then agreed with the other California Courts of Appeal that PAGA claims may not be ordered to arbitration, and disagreed with the Ninth Circuits Sakkab decision.

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